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April 2016 Market Commentary – Feeling the Pain Trade

Source: Bloomberg
  • The U.S. dollar has dropped 5.6% since the beginning of the year after having risen 9.3% in 2015. The currency that epitomized narrowly-driven asset class performance in 2015 is now leading the pain trade for many trend-driven investors this year. 
  • YTD relative asset class performance largely reflects the unwinding of the 2015 strong dollar trade.  Beaten down asset classes (commodities, non-U.S. assets, risky fixed income, value strategies) have handily outperformed what worked in 2015 (momentum, quality).
  • The market is now bifurcated between high yield / low volatility versus risky / pro-cyclicality, reflecting a bizarro version of the Goldilocks Economy (the porridge is both too hot and too cold).
  • Precious metals remain the standout performer, up 22.4% for the year followed by other 2015 laggards such as emerging markets debt (up 14.2%), commodities (7.4%), emerging markets equity (6.3%), and high yield (7.4%).  S&P energy, left for dead in mid-February, is now up 13.1% for the year. 
  • Despite the strong recovery in pro-cyclical market segments, investors continue to express a preference for low volatility / safety with S&P telecom and utilities up 14.1% and 12.8%, respectively.  Among factors, high dividend yield and low volatility continue to outperform value. 
  • This year’s losers: growth momentum and high quality.  Last year’s sector darlings (tech, health care, and consumer discretionary) are this year’s laggards.
  • In the midst of risk asset recovery, the global economic growth outlook remains uncertain as the world struggles with persistently weak inflation and high debt levels. 

To view full market commentary, click here.

By: Benjamin Lavine